04
Jul

Wrap – Week Ended 7/03/08 – Happy 4th!

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Have a great and safe 4th of July and remember not to hold, light, and throw explosives unless that is your day job and then by all means, have at it!

Here's the weekly wrap along with the gas storage review since Thursday was a half day.

Holdings Watch: Closed Positions for the week ended 7/3/08.

  • (HK) - Exited the July (HK) Calls for $4.00 (HKGJ), up 90% since entry on 6/30. Will be looking to add more longer dated calls on bouts of profit taking.
  • (QBIK) - Sold the Cubic common share position for $4.89, up 64% since entry one month ago. I simply can’t come close to defending the price up here. I will revisit if it comes in some but the (CHK) well rate news was the driver I saw eventually moving it higher and we got that in spades on the JV call.

We spent the latter part of the week adding near and longer dated calls into sector weakness. 

Holdings Watch For The Month of June:

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On to the Wrap

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ZComments:

1) Energy Sectors Sport Across The Board Decline. It's been a long time since I've had to write that. Blame sector rotation at the beginning of the new quarter, blame a shabby and teetering broad market, blame thin holiday volumes, or even the intra-day switch from extreme "buy, buy, buy" to "sell, sell, sell" on the gassy stocks by a media personality (from here on to be known as a Crameroo) for the dip. The reason behind the late week dip is probably a combination of all of the above. It certainly was not commodity related as they continued to advance to the bitter end. 

So Where Does That Leave The Energy Sectors? In a nutshell, fine. Unless you are talking about the independent refiners in which that is an entirely different ball of black wax. 

  • From a valuation perspective: E&P and Service have never become expensive as a group. There are some names in the hotter plays like the Bakken and Haynesville where you could say (on a forward cash flow basis) that valuations have become stretched.  These are not the names we generally traffic in. I'll have updated tables in Monday's post but in essence, this dip creates an opportunity as we head into a 2Q season that promises both catalytic operational news and guidance boosts...two of our favorite things.  
  • From a technical perspective: Little damage has been done to the charts with most just retreating to recent support or filling recent gaps. I'm not a chart guy at present but that is how got my start, scanning the weekly O'Neil books for a portfolio manager so I consider myself a fair hand at the basics and not a complete neophyte in the more advanced principals. The charts look fine too.

2) Commodity Watch: Onward and Upward For Oil and Natural Gas.

  • Oil looks destined to take out $150 in the near term. That's not necessarily a good thing for the energy stocks but that seems to be the target. I would much prefer that prices cool off some and it won't hurt valuations in the least since the stocks are not discounting $110 oil, let alone current levels. Two months ago consensus thinking was that $120 crude was the death knell of the global economy and the stock market. At these levels, with no hope of a near term supply side fix (price takes care of price but only over time) how those even earlier predictions of a second half recovery can possibly bear out.
  • Natural Gas continue to seek levels that will entice imports to arrive at U.S. regas facilities. Summer heat and the more active portion of the Atlantic Basin hurricane season may conspire to get it over the $15 which my sense is would be enough to get noticed. Of course, Europe in the low $20s still takes precedence but perhaps some more shorter haul shipments (from the likes of Trinidad) could begin heading northwest.  

3) Rig Counts. Another new high for gas-directed rigs. Horizontal rigs may have inched lower this week but the outlook for increases in their deployment only improved with news items this week. We increased our exposure to the land drillers (again) this week. The second half of 2008 is likely to resemble the end of the hockey stick for activity and onshore dayrate pressures are mounting for both rigs, OCTG, completion services, etc. 

The Natural Gas Storage Review 

The EIA reported an injection of 85 Bcf into storage, I was at 80 to 85 Bcf, the Street was looking for 88 Bcf. Gas reacted somewhat positively to the news. 

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Potential End Of Storage Season Outcomes. At present my back of the envelope math is leading me to think storage will end up in the 3.2 to 3.3 Tcfe range which is fairly bullish. We are passing the peak of injection season so unless a significantly cooler than expected Summer develops I'm not looking for a quick reduction to the YoY storage deficit. Not a lot more to add that I didn't already write in comments during the week. I may add a study or two as the weekend progresses.

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Have A Great And Safe Fourth Of July Weekend! 

One Response to “Wrap – Week Ended 7/03/08 – Happy 4th!”

  1. 1
    jazzkool Says:

    Lost my shirt on Wednesday and Thursday, trying to catch two falling knifes, Arch Coal and BTU. Virtually, all my oil holdings went south on Thursday. How did everyone else do?

    Jazz

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